A BAD FORTNIGHT FOR HONG KONG AIRLINES

Hong Kong : FOR Hong Kong Airlines, August has turned out to be the cruellest month. Hong Kong's Civil Aviation Department has told the airline that it is not allowed to expand its 21-strong fleet until it has met relevant safety requirements. And more recently the carrier announced that its business-class-only service between London Gatwick and Hong Kong is to close in September, just six months after launch.

What has changed in half a year? The press statement referred to "the continuing weak economic outlook in Europe, combined with the strength of the regional business within Asia". And Yang Jianhong, the company's president, attributed the move to a change of strategy. “We believe that a regional model focused on Asia Pacific is most appropriate for Hong Kong Airlines at this stage of our growth,” he said.

He failed to mention that the new service has been losing a lot of money. The South China Morning Post reports:

Insiders said the carrier burns about HK$1 million [$7.8m] to HK$2 million a day on the service and around HK$10 million a month. The monthly losses are lower than they would normally be because the airline cancels the services from time to time depending on the demand.

This is all very odd. Did the airline read the economic runes so poorly? Europe's continuing weak outlook can hardly come as a surprise—when the service began operation, business confidence was not exactly sky-high. At the time, Gulliver expressed doubts about the service's usefulness to business travellers because it was flying to Gatwick, it was operating just once a day, and it was going to struggle to appeal to travellers tied into BA's and Cathay Pacific's loyalty programmes. And yet Hong Kong felt confident enough to launch it. 

13/08/2012 :  A.B. / The Economist.

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